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What
Exactly is the Problem with FDI?
The
issue of foreign direct investment, FDI, raises voices of dissent and
concern all over the world. But what is actually the perceived problem
with FDI? Is the “F”, i.e. that the investment is foreign, or the
“D”, i.e. that it implies control over the investment, or maybe even
the “I”, that FDI can be investment to the point where it might crowd
out local investment. This was discussed at length at a recent Investment
for Development Seminar, hosted by CUTS in New Delhi. Participants from
around the globe illustrated specific problems their countries had
experienced with foreign investors.
The
research under the Investment for Development project also throws up a
number of problems. In South Africa, the sectors with most foreign
investment, telecom and the auto sectors, are the sectors in which South
Africa has experienced enormous job losses. In Brazil, foreign presence
seems to have had a negative impact on the composition of Brazilian trade.
Due to transnational production processes, Brazil is now increasingly
exporting low-tech goods, while importing its high-tech needs.
However, as
pointed out by one participant in the CUTS seminar, if we want to find
“FDI solutions”, we need to ask in what way the problems are really
specific to FDI. In some cases the lack of a sound competition policy
might be the problem. If foreign investors are allowed to enter into
monopoly position, the monopoly rents will simply be exported. Similarly,
if the trade policy is such that it creates a protected domestic market,
allowing foreign investors to exploit this market by overpricing will
simply lead to the export of profits. Tax policy is also important to the
overall impact of FDI. If investors are allowed to repatriate profits
before taxation, FDI will mean that tax revenue is simply flowing out of
the country. Examples of bad national policies vis a vis foreign
investors are many. The problems are however not problems of FDI per se, but are generic problems of economic governance, such as
lack of competition policy, and bad trade and taxation policies
respectively.
What is it then,
which makes these problems seem more difficult to handle when
“foreigners” are
involved?
The real problem seems to lie with difference in power between some
foreign investors and some host states. The problem is not that the
investors are foreign, but that they, due to their sheer size and
international connections, are powerful. As such, they are harder to
regulate and more likely to be able to influence national policies, such
as competition, trade and tax policies, to be good for the foreign
investors but bad for the host states. The same goes, of course, for large
domestic investors. This, however, is a state versus investor problem, not
a foreigner versus local one, and in this era of globalisation we need an
“all-states” versus investors solution. Instead of falling over each
other to offer foreigners the better investment climate, states should
come together to tackle some of the problems associated with growing
corporate power. The debate has long passed “foreign versus local” and
it is time for us to move on and find out where the problems really lie.
The
IFD Project
About the Project
The
‘Investment for Development’ (IFD) project aims to create awareness
and build capacity of the civil society on investment regimes and
international investment issues of developing and transition economies.
For more www.cuts-international.org/ifd-indx.htm
Project
Update
Reports
The
following reports of the project are available on our website. www.cuts-international.org/ifd-cr-lm-htm
1.
Finalised Investment Policy Country Reports (Report A).
2.
Draft Synthesis Report A.
3.
Draft Performance and Perceptions Country Reports (Report B)
4.
Draft Country Advocacy Documents (Report C)
National
Reference Group (NRG) Meetings
Sine
the last e-news National Reference Group Meetings have been held in
Zambia, Bangladesh, Tanzania and India. The reports of the NRG meetings
are available on our website www.cuts-international.org/ifd-indx-htm
Online
Forum
IFD
E-Forum, an online discussion forum under the project is available on : http://groups.yahoo.com/group/ifd_eforum
or write to IFD_eforum@yahoogroups.com
Upcoming
Events
OECD-CUTS Regional
Roundtable on Foreign Direct Investment in Transition Economies
At this roundtable, which will
be co-hosted by CUTS and OECD and held at the OECD Multilateral Centre for
Private Sector Development in Istanbul, Turkey, on 5-6
May 2003, FDI developments in the
Eastern Europe and Central Asia will be discussed. For more information
please contact ifd@cuts-international.org.
Investment for
Development Review Meeting
The Investment for
Development Review Meeting will be held in Geneva on 9-10 May 2003. At
this meeting the IFD project researcher will present their research
output, which will be reviewed and commented upon. A draft Advocacy
Document, with recommendation for government, civil society and
inter-governmental organisations will also be discussed at this seminar.
For more information please contact ifd@cuts-international.org
News
WTO
Subsidies rules threaten EPZ’s
A
common policy for attracting foreign direct investment might have to be
given up when as all countries need to eliminate their export subsidies by
1 January 2003, to comply with the WTO agreement on subsidies. This might
threaten the export processing zones (EPZ’s), where export subsidies
often play a crucial role. More on this can be found on UNCTAD’s Note to
Correspondents No 48 on www.unctad.org/en/press/pressref.htm.
GATS update
The
ongoing negotiations on trade in services at the WTO is now in its request
and offers phase. The EU draft offers, requests and MFN exceptions can be
found on www.gatswatch.org/docs/EU-draftoffer-1.pdf and www.gatswatch.org/docs/EU-draftoffer-MFN-1.pdf.
The possible effects of GATS on the access to water has been addressed in
a recent publication by the Canadian Centre for Policy Alternatives, and
is available on www.policyalternatives.ca/publications/brief4-1.pdf.
Investment Negotiations
at the WTO?
The
jury is still out on whether negotiations on investment will take place
after the WTO Ministerial in Cancun in September this year. An update on
the state of play of investment negotiations, and other Singapore issues,
prepared by the International Institute for Sustainable Development, is
available on www.iisd.org/trade/wto/doha_briefing.asp.
Publications
The
ABC of Foreign Direct Investment
This monograph, written
by CUTS, explains in a simple and reader friendly way the basics about
foreign direct investment, and explains the basic concepts used in the FDI
debate. It also lists the main costs and benefits of FDI.
Pulling
up Our Socks
This Project Report,
written by CUTS, is the outcome of a two-year CUTS project on competition
policy and law in seven Commonwealth countries, popularly known as the
7-up project. The report compares the institutional framework in the
project countries and analyses important issues like legal provision,
autonomy of competition institutions, financial and human resources. It
concludes with suggestions and recommendations for strengthening the
competition regimes in these countries.
For Subscription and Orders Please Write To
CUTS
Centre for Competition, Investment, Economic Regulation
D-217, Bhaskar Marg, Bani Park, Jaipur 302016, India
Ph: 91.141.2282821
Fax: 91.141.2282823/220 3998
Email: ifd_cuts@rediffmail.com
& cuts@cuts.org
Web:
www.cuts-international.org
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